• Due to the lockdowns and interstate travel bans, we are not surprised that Genting Malaysia (GENM) delivered a FY20 core-LATAMI of RM1,428m - the losses are within our expectations but higher than consensus
• The implementation of interstate travel bans in the 4Q had resulted in a 45% qoq drop in GENM’s Malaysia operation revenue, and a 70% qoq decline in its adjusted EBITDA
• We have revised our ESP forecast by 8.4%-12.5% to factor in the latest development, and raised our TP to RM3.12. We have also upgraded our call to HOLD, as we believe investors would likely look past 2021 earnings and focus on the recovery instead.

Interstate Travel Is Important for GENM

We believe that 2021 will continue to be a challenging year similar to 2020, given that it is only expecting Malaysia to achieve herd immunity earliest by end of 2021, hence the risk of a prolonged travel restriction remains. EBITDA for the Malaysian operation had declined by 45% qoq in 4Q20 mainly due to the lower visitation as interstate travel restriction were imposed in several states under the CMCO. We believe that earnings for the 1Q21 could swing to losses, as the casino was shut for more than a month, and interstate travel restriction have also been imposed after the reopening of the casino recently.

Outdoor Theme Park Is Set to Open by Mid-2021

After years of delay, management has guided that they are on track for the new outdoor theme park to open its doors by mid-2021. This doesn’t come as a surprise to us, given that the theme park was already more than 90% completed since end of 2020. Although it would be a key attraction to attract more visitations, the impact would likely be limited in 2021, as its capacity would be capped yb social distancing purposes. Apart from that, given that Malaysia has yet to reopen its border to tourism, the addressable market is still limited to locals only.

Upgrade to HOLD With a Higher TP of RM3.12

We have revised our EPS forecast for 2021-22E by 8.4%-12.5% to factor in the latest performance and update our margin assumption. We have raised our TP to RM3.12 from RM2.07, and upgraded our call to HOLD, as we believe that investors are likely to look past the struggle in 2021 and focus on the earnings recovery in 2022 instead. Key downside risk: 1) Prolonged ban on interstate travel and 2) Higher than expected losses from Resort World Catskills

Source: Affin Hwang Research - 26 Feb 2021